Companies expect overall office space demand to decrease as technology brings in better utilisation of space and reduction in headcount, according to a survey by a leading commercial property consultant. However, they see demand for high quality office space to increase in the near future.

Technology is enabling a more mobile workforce and requiring companies to build more agility into their headcount planning. As better space utilization, and weaker front and back office headcount growth will reduce overall demand for office space, landlords must act now to ensure they remain competitive.

Real Estate Developers are, however, more confident about the outlook for office space demand, as they anticipate stronger aggregate demand driven by new startups and emerging industries.

Companies across the Asia Pacific region are placing employee experience at the center of major real estate decisions due to advances in technology, rather than relying on just good location, according to the survey.

According to the survey, whilst location would remain important, the changing order of real estate would require buildings and work spaces to be far more flexible and adaptable than before.

According to the report, it is expected that the headcounts in the information technology space would increase and more multinationals are likely use co-working spaces and incubation centers to improve their access to IT talent and innovative ideas.

Would this increase the value of the commercial properties? Would more developers opt for leasing rather than selling?

A recent research report of one of the leading real estate research firms has revealed that the rental growth in several micromarkets across India, particularly in cities like Bengaluru, Pune and Gurgaon continued to surge during the quarter ended September. Bengaluru office property market continued to outperform other markets with 10 million sq ft absorption recorded in the first nine months of 2017. Shrinking vacancy levels built the upward pressure on rental in several micro-markets of Bengaluru. Although rental values in Pune stabilised in the second and third quarter, they are still relatively higher than the same period last year due to constant supply crunch in Pune market. In the last few quarters, due to availability of quality Grade A supply and necessary infrastructure, several Gurgaon micromarkets have also emerged as a bright spot in the National Capital Region market, thus leading to year-on-year rental growth.
The report further revealed that all the south cities and Pune market are witnessing single digit vacancy rates. While the construction of grade A commercial properties may ease some of the pressures, we do not expect inventory pressure to reverse any time soon. Despite a strong supply pipeline in most of these cities, we expect, the rental values to increase in the short term, especially, in grade A developments. In Bengaluru, due to its strategic location, proximity to prime residential areas and limited supply, CBD areas like MG Road, Vittal Mallaya Road continue to reign as preferred micromarkets among occupiers, thus recording an on-year rental growth of 16.7%, the maximum among all city micromarkets. During the quarter, Outer Ring Road (ORR) remained the preferred location with major contribution of 74% in the total absorption. Although the future supply pipeline in this micromarket is likely to complement demand, it is the most sought after location in Bengaluru. Owing to the same, rental values inched up by 7.1%, the report added. In Gurgaon, around 30% of the total leasing volume was concentrated on the Golf Course Road during the quarter. The location remained a preferred choice for premium occupiers, especially due to its enhanced metro connectivity, thus leading to 14.8% on-year rental growth. As an established IT hub in Gurgaon, Cyber City has continued to draw tenants due to its locational advantages along with presence of premium buildings and good infrastructure. Continued occupier preference and low vacancy rates in this micromarket pushed the average rents by 9.5% on y-o-y basis.
The IT-ITeS destination of Chennai, the OMR Pre-Toll micromarket, comprising Taramani, MGR Salai, Kandanchavadi, Perungudi locations witnessed rental growth of 11% y-o-y. Despite continuous upward pressure on rents and low vacancy, the micromarket maintains its preference among occupiers with 51% share of total absorption during the quarter. The office market performance in Hyderabad continues to be intense in the Secondary Business District (SBD) and about 80% of the total leasing volume during the quarter is concentrated in this micromarket. Being the preferred micromarket in Hyderabad, SBD witnessed about 8% y-o-y increase in rentals. Would Indian cities pick up on the next few quarters?

Private Equity Investment in real estate in India, for the first nine months, according to a survey by a leading real estate research firm, has risen up to $3.16 billion across 40 deals. Many global and domestic institutional investor continue to infuse capital into the Indian Realty sector, more particularly the commercial realty sector. The average investment size has also increased as similar inflow was registered during the previous year wherein across 66 transactions were concluded. This year, it has surpassed the previous year’s investment record, by lesser transactions, which was $3.14 billion, which has marginally arisen this year. In the third quarter 2017, commercial space continued to dominate in terms of volume and value. Six deals worth $356 million were announced in the commercial space compared to five deals worth $340 million in the residential space in the September quarter. According to reports, Real estate companies and projects have attracted 11 investments worth $696 million. The experts predict that the year 2017 will be steady in terms of institutional investment into real estate and that more long term and patient capital from stronger entities such as pension and sovereign funds would also be entering into the sector.

Are strong secular growth, stellar demographic trends, and improving transparency the key factors supporting the real estate occupiers as well as boosting the investor demand more particularly the office sector? Is this situation ideal for long term investors? Is this a great achievement that the Indian Realty Sector could boast off?

A research report by a leading real estate research firm, has revelead that the artificial intelligence (AI) and automation have a great potential to disrupt the current real estate market, which is already in a deep danger due to rising rents and poor infrastructure, which inturn pose a greater threat to the industry. Office rents in National Capital Region (NCR) and in Mumbai, traditionally the centres of economic and political power in the country, are more or less stable. However, rents have been rising in the IT-focused cities of Bangalore, Pune, Hyderabad and Chennai. In the first half of 2017, Banglore and Hyderabad both witnessed single-digit vacancy levels hovering between 8-9 percent due to a dearth of quality Grade A stock, thus leading to increased rental values. Therefore, with the demand for quality, Grade A supply continuing to be high, especially in the preferred and most active micro-markets, rentals continue to stay closer to the higher end with no visibility of any correction in the near to medium term, stated the report.

According to the research report, this trend would persist for at least the next three years, prompting the landlords to be careful so as not to force out tenants in the IT-focused cities by raising rents excessively. Grade A developments and buildings with high accessibility would continue to command premium rents. The Developers should continue to focus on such buildings, and preferably incorporate new features in building managements systems and alternative workplace solutions.

From a real estate perspective, wouldn’t it be imperative to perceive the cost reduction and at the same time creating a differentiator by introducing automation in building management systems? Most metropolitan cities have been plagued by infrastructure issues for years and the situation has detiorated considerably with increased population in these cities. Would this mean that Artificial Intelligence would in long term allow cars without drivers and excellent real-time communication with the office for efficient time management? Would Firms need to be viewed as ‘in tune with the times’, ‘future ready’ and ‘next generation, technology friendly’ to attract talent and high-tech enterprise clients?

One of the leading real estate research firms in India, had predicted that Chennai would be the real estate hotspot in India courtesy its high growth potential. However, after five years, Chennai instead of becoming a real estate hotspot has only become a real estate stale mate. Real Estate Consultants were bullish about the Chennai market in the year 2012, however, the 2015 floods, coupled with demonetisation and the recent political outburst brought Chennai to a stand still. Many investors are now turning on to states such as Maharashtra, Andhra Pradesh, Telangana, which according to a recent research report, the hotspot for real estate market. As urbanisation has picked up pace in the country, traditionally-preferred property investment locations in most main cities are getting saturated and increasingly expensive. In Chennai there is hardly any scope for improvement or appreciation in prices since the city on the whole is suffering from a plethora of reasons, the unstable political scenario being the primary reason. Investment in the industrial sector had dried up. There are no new IT parks that have come up in Chennai to house more companies and create new jobs. The dearth of jobs in city has led to lacklustre performance of Chennai Realty Sector. Does this mean that the city would trigger more housing demand, only if there are more jobs created? When would Chennai city wake up from its deep slumber?

The National Building Construction Corporation, the Union Government’s construction arm, is to construct a World Trade Centers in New Delhi and Guwahati and had obtained the world trade center licence in June 2017. The total commercial area planned for the project is 3.2 million sq.feet, wherein there would be a total of 12 towers each of ground plus 9 configuration. One of the towers was also sold for Rs. 1,100 crores and another one is scheduled for the next month. The World Trade Center in Guwahati would be built at a cost of Rs. 2500 crores, which would be completed in the next three years, for which the design has been finalized and the commencement of construction would begin from the month of January 2018. Only one WTC license is granted per city. The WTC license helps in improving branding with WTC clientele and facilitates marketing of spaces. There are totally 220 WTCs in the world, out of which there are 23 in India, in the cities of Surat, Goa, Gandhinagar, Pune, Noida amongst the others. A WTC in Chennai is also underconstruction, which is expected to be operational from January 2018. Would India see more such centers being built?

CMDA has directed the planners to charge Rs. 25 per square feet for residential projects and Rs. 75 per square feet for commercial projects, towards ‘shelter’ fee from the residential projects which are above 3000 square meters. Why is this sudden move? What does the CMDA plan to do with such fund so collected? The answer is that the fund, which is dubbed as ‘Amma Shelter Fund’, which would be collected from the Developers and would fund and finance the affordable housing for the lower income group and the economically weaker sections, apart from helping the reconstruction of slum clearance tenements on the government land. The aforesaid shelter fee would be 75% of the Infrastructure and amenities charges. Only those projects which are below 50 square meters would be exempted from the shelter fee. Is this a welcome move by the Developers? What is the workability of this? Are the real estate bodies such as CREDAI and NAREDCO welcoming this move? Wouldn’t this move make TN, less competitive when compared to other states in terms of investments?

Certain hill stations in Tamil Nadu, particularly Kodaikanal, is reportedly witnessing a lot of illegal construction, which are harmful to the land as well as the lives of the people. Kodaikanal, a famous hill station as well as tourist spot is located 2000 meters above sea level in Dindugal district is a popular tourist destination as well as a grassland with large number of meadows and grasslands apart from streams, waterfalls and gardens. To meet up with the demands of tourism, many people are indulging in rampant constructions in the place, which would result in a major landslide ensuing a huge loss to livelihood and property. The government is equally inactive in implementing measures for curbing the illegal felling of trees and removal of earth for unauthorised construction. Many unauthorised constructions in this region, is mainly for commercial purposes, and the perpetrators, are completely aware of the in-action on the part of the government, for the said issue. The Madras High Court, in its recent decision, has sought for a report from the Commissioner of Kodaikanal Municipality and the Director of Town and Country Planning, directing them to carry on an inspection and submit the same on or before November 8th 2017. The judges also opined that the unauthorised construction would result in heavy losses both to life and to property, in case of any rains or landslide, and hence unauthorised construction in this area particularly for commercial purposes has to be curbed. Are the unscrupulous Developers hearing? Would the Government heed to the Judiciary’s order and implement accordingly? Would there be a reduction in the unauthorised construction after the High Court’s order?

A recent survey conducted, revealed that the cities such as Bangalore and NCR have topped the office leasing, for H1 on the Asia Pacific region. A higher amount of absorption activity was seen in the Bangalore by 11% and NCR in Delhi. Global office leasing had remained stable in H1 of the current financial year, with co – working operators, currently leading the commercial realty sector. Why doesn’t Chennai rise up to its neighbour Bangalore? Why is Chennai suffering from lack of quality office spaces? Why is there a low vacancy space in Chennai? Is it due to lack of adequate infrastructure or is it due to the rampant unorganised local bodies, which still do not revive, despite legislations and regulations.

Co- working is now developing as the fastest growing areas in the commercial real estate. Now, as per the survey of Cushman & Wakefield on co-working spaces, the co -working operators have now come up with value added services, in order to create a community of users helps in constant generation of revenue in the business. As per CBRE’s recent survey on the “Art of co – working , it is stated that providing value added services apart from personalisation of services would also attract more revenue. Co- working operators get a reasonable commission, when their clients avail the opportunities of the value added service providers. Wouldn’t value added services add up 20 to 30% more expenditure to the Users? Would the users still make use of this facility afforded to them?